10/19/2011 @ 6:00PM

Tech Titans And Creative Destruction

While cultural and economic progress along the digital frontier unfolds unevenly at times– and produces its share of tech giants in the process–the general direction of change remains quite encouraging. More and better technology and information options are placed before consumers every day. And competition and innovation remain robust.

But Chicken Little-ism still runs rampant. For example, a recent
Washington Post
headline screamed, “Four Titans of Tech Are Racing to Be King of Digital Age.” Like many tech stories these days it focused on the heated battle between
Apple
,
Google
, Facebook and Amazon, and featured the requisite amount of stewing from nail-biters.

Such ominous tales are par for the course these days. Critics both in government and academia often claim a veritable Great Digital Closing is about to occur, even though consumers keep getting access to more services and more flexible ways of using those services. Consider how many ways there are to “watch TV,” “read a paper” or “make a call” today compared with just a couple of decades ago. Options were quite limited, and a handful of titans really did control most data flows in the analog era. By comparison, we’re now living in a golden age of information access and communications capability.

But shouldn’t we dread the increasing “dominance” of the big four? Aren’t Apple, Google, Facebook and Amazon set to become ruthless “information empires” hell-bent on limiting choices and controlling voices? Such tall tales help pessimists peddle books and grab attention, but there’s no reason to fear these companies–or expect that they will stay in the catbird seat forever.

Most of the recent hand-wringing about the supposed dominance of today’s big four fails to mention
Microsoft
,
Intel
, AltaVista, AOL,
Yahoo
, BlackBerry or the old telcos. It would have been impossible to pen anything about technology “dominance” in past years and not mention those companies. Today they rarely get a mention, except perhaps to highlight their rapid fall from the upper echelons of Tech Titandom.

Consider Google’s recent bid for
Motorola
, which positions the search giant better for battle in the smartphone and tablet wars with Apple. Think about it: A company that didn’t even exist 15 years ago is now making telecom giants sweat. Meanwhile, Facebook, a company started in a college dorm, made
News Corp.
‘s $580 million bet on MySpace turn out to be a megaturkey.

Of course, Apple had what former CEO John Sculley called a “near-death experience” just 15 years ago, only to experience a Lazarus-like rebirth and revolutionize the computing, online music and mobile device sectors thanks to the vision of Steve Jobs. Finally, Amazon, along with Apple, has upended media distribution methods and forced mass-media giants to rethink how content is priced, bringing prices down in the process.

This is capitalism at its finest, not the catastrophe the tech pessimists predict.

Simply put, we now live in Joseph Schumpeter’s economy. The Austrian-born economist had the digital economy figured out seven decades ago. Cascading waves of continuous change, or what Schumpeter called the “perennial gales of creative destruction,” reverberate all around us in the tech economy. Innovative risk-takers are constantly shaking things up and displacing yesterday’s lumbering, lethargic giants. In markets built largely upon binary code, the pace and nature of change has become hyper-Schumpeterian: unrelenting and utterly unpredictable.

The pessimists will lament the gains made by some players in the digital economy and the general messiness of market outcomes. But that’s hardly surprising. It’s also essential that it be allowed to continue.

Schumpeter’s keenest insight was that such uneven entrepreneurial gains–even supranormal short-term profits–must be tolerated to produce innovation and efficiencies. Penalizing the risk-takers by trying to “level the playing field” through excessive regulation, taxation or antitrust threats will simply sap the entrepreneurial spirit from the marketplace, limit technological innovation and diminish the possibility of progress over the long haul.

Thus, we shouldn’t buy into pessimistic tales of a techno-apocalypse. There’s no reason to believe Schumpeterian creative destruction won’t continue to roll through the digital economy and displace today’s giants–or at least keep them in check. Tech markets need to be free of artificial government constraint, which, inevitably, is always one or two steps behind fast-moving technological developments.

Have a little faith in the future.

ADAM THIERER IS A SENIOR RESEARCH FELLOW AT THE MERCATUS CENTER AT GEORGE MASON UNIVERSITY.